Experts to N.B.: get spending under control

Experts to N.B.: get spending under control

News that the provincial government is predicting a staggering $800-million deficit for next year should erase any doubts that New Brunswick is taking a hit because of the global financial crisis, say provincial economists.

But experts disagree on whether Finance Minister Victor Boudreau will be able to bring the province back into the black by 2012-2013 as government has suggested.

Pierre-Marcel Desjardins, an economist at l’Université de Moncton, said the provincial government is going to have to get its spending under control and increase revenues if it wants to avoid an endless cycle of deficits.

“The recession is indeed hurting us,” he said. “Although some thought we were going to escape, with 85 per cent of our exports going to the U.S, we are seeing the impact of the recession.”

David Murrell, an economist at the University of New Brunswick, agreed.

“We’re probably in a more severe recession than we think we are,” he said.

Although some things are out of government’s control, including federal transfers, Murrell said he would like to see New Brunswick return to balanced budgets more quickly.

He pointed to several large projects, such as a second nuclear reactor and refinery, as ways to kick-start the province’s economy.

“If they go ahead, the province is no longer in a recession,” he said.

A government official told media outlets this week that a third of the projected deficit is due to a shortfall in the government’s pension plans. Increased capital spending will also cause the province’s debt to grow.

As a result, government is saying it will likely cut hundreds of government jobs and scrap some programs.

In comparison, Nova Scotia announced it will balance the books in 2009-2010, although the province’s net debt will grow over the next three years.

Desjardins said he suspects New Brunswick is actually in a structural deficit position, meaning it’s not caused simply by the recession. Spending and a loss of revenue are also contributing to the province’s shaky finances, he said.

“With the recession probably taking several months and maybe a year to bounce back, getting back into a balanced budget position that early would be surprising,” said Desjardins.

That means government needs to be careful when deciding how to rejuvenate the economy and avoid long-term spending commitments or permanent tax cuts, said Desjardins.

“When the economy’s going to bounce back, if they become permanent, it’s going to be tougher to get back to a balanced budget position,” he said.

The faster the province can balance its books, the better, he said.

A hefty deficit means extra money is needed to pay off the interest on the province’s debt, leaving less money for government programs.

As well, long-term deficits could impact government’s access to cash, said Desjardins.

“What are the rating agencies going to say? If they think that we’re on the wrong path and they decrease the province’s rating, then it’s going to be more costly to borrow and we get into a vicious cycle.”

The auditor general has warned that New Brunswick’s debt could balloon to $9 billion by 2011.

Charles Cirtwill of the Atlantic Institute for Market Studies said governments are becoming skilled in releasing bad news in advance of budgets in order to soften the blow on the day the actual document is released.

As well, it’s increasingly easy for governments to blame all financial problems on the worsening economy while special-interest groups use the opportunity to lobby government for particular projects, he said.